Democrats, Republicans battle over budget

WASHINGTON (CNN) -- Blaming each other for the shrinking budget surplus, Republicans and Democrats offered contrasting proposals Sunday on how to keep government spending and revenue in check.

Several prominent Republicans pushed for a cut in the capital gains tax to spur economic growth, with Senate Minority Leader Trent Lott saying an across-the-board spending cut may also be needed.

But Democrats said there was no way to avoid dipping into the Social Security surplus to meet President Bush's top priorities -- defense and education.

"As a practical matter, I don't think the president has left us with any choice," Sen. Joseph Biden, D-Delaware, said on NBC's "Meet the Press."

What's in a 'surplus'?

The U.S. figures its annual bottom line by including all tax revenues - including taxes that can only be used to pay Social Security benefits. If revenues fall short, the government has customarily borrowed from Social Security.

*Includes Social Security trust funds as well as the net cash flow of the Postal Service

What's the impact?

If Congressional Budget Office estimates are correct and the government needs to borrow from the Social Security trust fund, here are the effects of the move:

Social Security benefits are not affected.

Money taken out of the trust fund would be credited to the Social Security account.

It could slow down the pace of paying off long-term debt.

Some Democrats said Bush should submit a whole new budget in light of the tepid economy and recent surplus projections.

Speaking on CBS's "Face the Nation," Sen. John Kerry, D-Massachusetts, said the administration needs to put forward a budget that has "numbers in it that are real."

The latest round of political haggling follows reports that Mitch Daniels, the White House budget director, informed congressional Republicans on Friday that at least $10 billion from the so-called Social Security surplus is needed to balance the budget.

Both Bush and many members Congress have previously vowed not to take that step.

The shrinking surplus, coupled with a rising unemployment rate, has intensified this fall's fight over the economy and budget.

Senate Majority Leader Tom Daschle, D-South Dakota, said Democrats feel the White House must act first to resolve the dilemma.

"I think it's not really our responsibility to offer ways out of the Bush economy," he said. "It is the president that got us to this situation. I think it is the president that needs to lead us out. I have pledged my cooperation."

As they have for months, Democrats cited Bush's $1.35 trillion tax cut as one reason the surplus has diminished. The White House maintains the tax cut is just what is needed to kick-start the economy.

The president "remains open-minded" about a capital gains tax cut, said Jennifer Millerwise, a White House spokeswoman. He "remains confident that tax cuts and the federal reserve interest rate cuts are the right remedy and will encourage the growth needed to bring the economy back," she added.

Congressional Republicans want to reduce the tax on such capital gains from 20 to 15 percent --one of several measures they say could boost the economy.

Lott told CNN's "Late Edition with Wolf Blitzer" that an across-the-board spending cut might have to be considered.

"You're talking about an infinitesimal amount, probably less than, you know, five-tenths of 1 percent of the overall budget," Lott said. "It can be done."